Regulators Let Wall Street Turn VIX on Its Head

The best thing you can say about sudden market drops is that they can point out the market's weaknesses and create a road map for regulators to clean up any excesses. The bad news is that regulators look increasingly uninterested in protecting investors from the market's potholes.

So on Tuesday, while it was still hard to know what was propelling the market's decline -- rising interest rates, inflation fears -- it was pretty clear what had made the market's drop worse: volatility indexes and the billions of dollars tied to them. It wasn't supposed to be this way. The CBOE's Exchange Volatility Index, commonly called the VIX, was supposed to make the market less volatile by giving investors a better picture of the possibility of a stock drop and the ability to hedge against it. Instead, Wall Street did Wall Street and managed to produce the opposite outcome -- the index that was supposed to smooth out volatility has made it worse.